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SeedLegals Exit
Startup Guides Published:  Mar 2, 2023 5 min read
Expert reviewed

SeedLegals Exit, the new game-changing way to sell your company

There are many reasons why you might want to sell your business, and it’s tricky to know when is the right time to sell. Sometimes things work out, sometimes they don’t, it’s part of the risk-reward rollercoaster of being an entrepreneur.

In this post, we’ll look at the current prospects for modest exits, not the IPOs or £1 billion sales. Instead, we’re talking about sales under £15 million, which are much more common, and how our new Exit service will be a game-changer for founders selling these companies.

Contents

 

The status quo and why it needs to change

Traditionally, founders have three ways to exit a company:

  1. Sell – and pay a fortune in legal fees 💰
    This can take months and the astronomical cost of the legal fees (from tens of thousands to hundreds of thousands) can greatly reduce your payout.
  2. Go into zombie mode 🧟
    If you reduce burn to zero, your company won’t be productive – it isn’t alive or dead but it’s still going. A zombie company like this will still drain your time, it might hold you back from moving on, and you could be preventing the company from reaching its potential with new owners.
  3. Shut down 🔚
    Put the company into voluntary liquidation. This way, you’ll get no payout at all, but the legal process with Companies House is straightforward.

With this as the status quo, founders who make a modest or distressed exit have been neglected. The high legal costs and the significant time and effort involved mean that any potential payout is eaten up by the cost of selling. Often it simply isn’t worth it – it’s easier to wind up the company.

Traditionally, it’s also been tricky to find buyers for your company – it isn’t as if you can publicise your intentions on LinkedIn. This makes a sale even more elusive.

The exits we read about are usually mega-exits – the 100X sales of unicorns, companies doing an IPO, or large private equity deals. But we believe all exits should be celebrated. If you’re a bootstrapping founder, an exit of a few hundred thousand pounds can be life changing. And even for investor-backed companies, if you sell for low multiple (3 to 5X), this can be great news – you’ll land the founders a few million, early employees with options can exercise and cash in their shares, and investors get a decent return.

Even if you aren’t able to secure a payout for your existing investors, you might be able to minimise their losses.
Find out more in our post: EIS and SEIS loss relief

Exit a company the SeedLegals way

The status quo needs to change, so we’ve built SeedLegals Exit, the fast and easy way for founders and company owners to sell a company.

It’s now as straightforward to sell your company on SeedLegals as it is to do a funding round – the legal documents are standardised, automated and customisable, and our service includes unlimited help.

This means it’s now possible to sell, using top quality documents and expert support, for far lower legal costs and much less effort. This maximises your payout and drastically cuts down how long it takes.

Alongside the launch of our new Exit service, it’s becoming easier to find a buyer. There are now more services such as Foundy and Acquire which help sellers and buyers find each other. The future looks promising for micro and modest exits – you find the buyer, we do the rest.

How it works

Here’s what happens step-by-step when you sell your company on SeedLegals:

Before you find a buyer

  • Create the Heads of Terms
    Log in to SeedLegals to create this important document to share with potential acquirers. Answer a few questions and we automatically generate the Heads of Terms. It’s easy to adjust the terms as you negotiate with a buyer.

When you’ve found a potential acquirer

  • Sign an NDA
    You can do this on SeedLegals, in Agreements. It’s important that your buyer signs the non-disclosure agreement so they don’t disclose any of your confidential data.
  • Agree the Heads of Terms
    Negotiate the terms with your buyer. When you reach an agreement and are ready to progress the deal, generate all the documents you need on SeedLegals, in just a few clicks.
  • View payouts
    When you sell a company, each shareholder gets a proportion of the proceeds of the sale, calculated based on their shareholding. Before, it used to be tricky and time-consuming to work out these payouts. Now, on SeedLegals, payouts are calculated instantly, and if you change the sale price, the payouts adjust dynamically.
  • Build your Data Room
    Upload any documents that you’ll need to share with the buyer as part of their due diligence.
  • Buyer does their due diligence
    Any buyer will investigate a target company carefully to know exactly what they’re buying. To save you time, we make due diligence as easy as possible for buyers. On SeedLegals, you can create the due diligence checklist, Share Purchase Agreement (SPA) and Disclosure Letter to share with your buyer. Grant and remove access to your Data Room as required.
  • Everyone signs the Share Purchase Agreement
    The buyer and all the selling shareholders sign the Share Purchase Agreement.
  • Chair signs the Board Resolution
    Your board needs to agree to the sale and approve the transfer of shares to the buyer.
  • Generate J30 forms
    The selling shareholders need to use this form to let HMRC know about the sale of their shares.
  • Buyer pays stamp duty
    If the buyer paid more than £1,000 for the shares they bought, they have to pay stamp duty (normally 0.5% of the purchase price).
  • Complete the share transfers
    When the Share Purchase Agreement and J30 forms are signed and the buyer has paid stamp duty, you can complete the share transfers on SeedLegals and issue new share certificates to the buyer in just a few clicks. We automatically update the cap table to replace all the existing shareholders with the buyer, who now owns 100% of the shares.
  • Store documents securely on SeedLegals
    All the documents for the sale are generated, updated, shared, signed and stored securely on SeedLegals, making it easy to stay organised.

After the sale

  • Transfer your SeedLegals account to the buyer
    Talk to our team about transferring ownership and admin rights for the company SeedLegals account to the buyer.
Anna Sivula

What happens with staff payouts and entitlements?

Whether your staff get a payout and/or keep or their entitlements depends on whether you’re selling shares or assets:

In a share sale, the buyer buys the company as a whole, including taking on all existing employees who will continue in their jobs and keep their entitlements.

In an asset sale, the buyer can purchase some or all of the assets of the company. What happens to the existing employees depends on what the buyer is buying.

If the buyer takes on the whole business or a whole business unit, the employees might be protected under the Transfer of Undertakings (Protection of Employment) regulations (TUPE). If TUPE applies, the buyer usually has to recognise previous service when it comes to entitlements such as redundancy, annual leave, unfair dismissal and notice of termination.

If the buyer is cherry-picking assets and isn’t buying the whole business or a business unit, TUPE might not apply. In that case, the buyer purchases the assets they selected, and existing employees remain with the company. You can then keep the employees on, for example if you continue to run the remaining parts of the business, or the employees could be let go under a redundancy or winding up process.

There’s more detail on TUPE for business transfers at the gov.uk website.

Anna Sivula

Senior Legal Associate,

SeedLegals

Currently on SeedLegals, you can do a share sale.

Democratising access to legal expertise

In the exit market, corporate buyers know exactly what they’re doing but small company sellers often don’t. This knowledge imbalance puts founders and small business owners at a disadvantage. We’re changing that.

Just as we’ve revolutionised the legal process for fundraising and investment, SeedLegals is stepping up to empower founders with the tools and know-how to sell the business. We’re here to support your company’s journey from start to finish: from your Founders Agreements and Advanced Assurance to Exit. You might be years away from thinking about selling, but it’s good to know that when you’re ready, we’ve got it covered.

Do I need to hire a lawyer to sell my company?
It depends. Companies can find themselves paying tens of thousands of pounds in legal fees for what are often standard legal documents. If your sale will be for less than £15 million, then SeedLegals Exit could be right for you and you won’t need a lawyer unless the sale gets complicated. You’ll have unlimited support from our team, and they’ll let you know if you should seek legal advice.
For higher value deals, we recommend you seek independent financial and tax advice from qualified specialists.

We’re the leaders in startup legals, here to help from start to finish

When you sell a company, it isn’t a time to experiment. You’ll want to stay in control and get the best possible support. That’s why it makes sense to choose SeedLegals.

Our team has worked on the legals for thousands of companies, not just at SeedLegals but our colleagues have years of previous experience at law firms and in-house for companies and investors. Plus some of us have built and sold companies too. Founders who choose SeedLegals benefit from this collective knowledge, and our specialists thrive on passing on this knowledge to founders.

When you kick off your sale with SeedLegals Exit, we’re here to help you understand what the terms mean, the implications for your sale and your employees, and when to push back in negotiations. Your decisions can be backed up with our extensive data: we know which terms are standard and what’s typical for companies like yours.

Good to know: For SeedLegals Exit, as with all our services, unlimited help and support from our specialists is included. Read more about SeedLegals Exit

Talk to an expert

Our Exit service will be live on SeedLegals soon. We know selling your business is a major decision – if you’re ready to sell or just considering it, book a free call to find out more and talk it over confidentially with one of our experts.


Suzanne Worthington

Suzanne Worthington

Sooze is our Senior Writer. She's obsessed with making complicated things easy to understand.
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